You figure you’ll start a little business from home to supplement the family income, do you?
Maybe you’ve given up that job in retail sales to babysit some neighbourhood kids after discovering just how much a second child in daycare eats into the take-home pay; or perhaps an unexpected layoff provided an opportunity to crank up the old lathe in the basement and carve, finish and peddle wooden highchairs.
It could be that after retiring from an accounting job, you posted on social media in hopes of drawing income tax customers to your CPA qualifications and razor-sharp pencil; or maybe you’ve decided to put your toolkit and legendary handiness to good use and just can’t believe all the interest the kijiji ad generated.
Being the Best Boss You’ve Ever Had
If you’re considering setting up a business from your home, you’re in good company. Between a new breed of worker with a robust definition and healthy appetite for work-life balance, and a bulge of boomers transitioning—willingly or otherwise—out of the traditional workforce, there seems to be an increasing demand for home-based income streams.
Your homeowner’s policy surely covers that, right? After all, it’s just a casual gig to make a few extra bucks.
Well, you may just want to hold your (work)horses a minute.
Survey Needs For a Coverage Blueprint
It is vital to ensure adequate coverage is in place, or arranged, to cover your home business. Personal Property insurance—also known as Habitational or Residential insurance—is principally intended to cover the personal property and activities usual to a private dwelling. Your policy may extend coverage for incidental business property and activities, but standard homeowner’s and tenant’s policy wordings invariably have strict limitations when it comes to revenue generating business or commercial endeavors.
Insurance underwriting is the art of evaluating risk and arranging coverage, terms and pricing to fairly and effectively reflect that risk. A coverage solution for a given home business considers, among other things, the unique hazards of the business operation and the revenue it expects to generate.
Underwriting rules and policy language vary substantially between insurance companies and your best bet is to discuss any home business consideration or activity with your insurance broker. Solutions, in one form or another, are readily available for virtually all home-based businesses.
It’s More Like a Socket Set Than an adjustable Wrench
Closing insurance coverage gaps sometimes requires the precise fit of multiple socket set pieces rather than the slip-prone adjustable wrench carelessly expanding to stretch the intent of the standard homeowner’s policy.
In recognition of recent trends, many insurance companies have developed specific home business products that extend habitational policies and make a practical distinction of exposures for customers falling between a pure personal risk and full-blown business or commercial enterprise.
Here are some examples and three approaches within which the majority of home-based businesses will fit.
- If you operate a small daycare or tutor a few kids from your home—and no provincial by-law requiring licencing applies—your existing homeowner’s policy may provide coverage for your incidental business property and applicable liabilities at no added cost.
- If you make crafts and sell them from an onsite showroom, it’s likely a home business extension (or other endorsement) will be required under your homeowner’s policy with an additional premium usually charged.
- For the retiree making infant highchairs, or the accountant providing a professional service, it’s likely that a separate commercial policy with appropriate coverage and pricing would be required.
If you’ve noticed ample use of the qualifiers, may or likely, it’s intentional recognition of less than uniform wordings and underwriting rules in the marketplace. The good news is your Mitchell & Whale broker has both the technical expertise and product understanding to provide definitive solutions that meet your specific needs.
A Peek Into the Craft of Underwriting
Determining whether a home business is: automatically included; available as a personal property extension; or destined for a separate commercial policy, is largely tied to the potential for losses and claims arising out of the specific business operation. The broker or underwriter applies established rules or judgments relative to the loss exposure to owned property, and the potential for property damage or bodily injury to other parties resulting from legal liabilities associated with the operation of the business, work completed, services provided or products sold.
In a future post we’ll drill down to look at some practical examples of home business operations and how they impact the probability of loss (frequency and severity) under typical risk and coverage components: Property (Owned Building and Contents); Crime; Liability (Premises); Liability (Operations); Liability (Products); Liability (Completed Operations); Liability (Professional).